BMO Revises Upward 2014 Forecasts For Gold, Silver

(Kitco News) - BMO Research upwardly revised its gold and silver forecasts for 2014, although the bank listed expected averages that are down modestly from current prices.

The Canadian bank, in a quarterly report on mined commodities Thursday night, said it favors palladium over platinum, although it left its palladium outlook unchanged and revised up the platinum forecast marginally.

BMO described palladium, iron ore and met coal as its “preferred commodities” and said it was “neutral” on copper, platinum, gold and silver. The bank is “cautious” on diamonds, nickel, uranium, zinc, thermal coal and aluminum.

The bank said it looks for prices generally to remain largely range-bound through year-end.

The 2014 gold outlook was revised up to $1,275 an ounce from $1,181 previously, while the silver forecast was revised up to $21 from $18.

“Gold prices remain relatively volatile but range-bound,” the bank said. “Macro events continue to be the heavyweight driver of gold price direction, but the most recent events have seemingly been priced in. Combined with a general lackluster interest in metals, there is little upside support for precious metals in the near
term, in BMO Research’s view.”

BMO Research said it expects gold and silver prices to decline through 2014, assuming the U.S. recovery is well under way. Gold could potentially be supported over the longer term by unknown fallout from years of easy money, BMO said. “The last four years of money printing and increasing debt levels are unprecedented, and the medium- to long-term repercussion of these actions can only be speculated,” the bank added.

BMO said it looks for silver to underperform gold due to an uncertain industrial demand outlook in the U.S. in the near term, as well as expectations for significant supply growth in 2014 and 2016.

Meanwhile, BMO said it looks for palladium to continue outperforming platinum in the near term. In particular, the bank cited resolution of some labor issues in South Africa that limits the potential for disruptions in platinum supplies and thus upside in the price of the metal. Also, palladium is more leveraged to the stronger auto markets of the U.S. and China, whereas platinum is more closely tied to the weaker auto markets in Europe.

BMO said it looks for the palladium market to remain in a “significant” supply/demand deficit over the medium term, although the firm added that this is probably already factored into prices. The bank maintained an average 2014 palladium forecast of $700 an ounce. “The destocking of Russian stockpiles, which has supplemented mine supply, is expected to decrease meaningfully over the next few years,” the firm added.

BMO revised its 2014 platinum outlook only slightly to $1,400 an ounce from the previous $1,394 mainly based on its forecast for the South African rand.

The copper forecast was left at $3.25 a pound. The bank cited potential for stronger-than-expected mine supply growth but said this could be offset by a greater-than-expected inventory drawdown due to stronger industrial activity in China.

BMO also said “copper projects remain the hottest commodity on the block” despite the mediocre performance of copper prices and equities for the year to date and with the consensus outlook from analysts calling for copper prices to fall.

However, the bank emphasized that “greater demand for these projects does not necessarily translate into higher prices. Further, greater scrutiny of mining investments in the current
environment also means that only the most attractive projects are sought after.”

Other base metals, for which there were no revisions to 2014 forecasts, include aluminum 82 cents a pound; nickel, $7.25; zinc, 85 cents, and lead, $1.

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